Saturday, February 13, 2010
3:02:49 PM EDT

If You Trade At All

by
James Brown

Once again I am urging readers to be cautious here. Stocks are having difficulty with their oversold bounce from support. This sideways choppiness is evidence of investor confusion as the market tries to sort out all of the ramifications of China trying to slow its economy, the rebound in Europe stalling, the European debt crisis with Greece and similar countries, and some truly lackluster economic data out of the U.S.

Sometimes the best trade is no trade at all. It's okay to sit back and wait. There is always another opportunity. On a very short-term basis the stock market acts like it wants to trade higher. However, I want to point out that this could very easily be a bear-flag formation that will eventually breakdown into a new leg lower.

I am suggesting some bullish candidates today but they're all very aggressive trades. I would use small positions to limit your risk if you trade them at all.

NEW DIRECTIONAL CALL PLAYS

Autozone Inc - AZO - close: 160.85 change: +2.20 stop: 154.95

Why We Like It:
I've had my eye on AZO for a while. Back on January 27th I thought it might have been a bearish entry point with the failed rally but there wasn't much follow through. Shares have been building on technical support with its rising 50-dma. The stock garnered an upgrade from Citigroup on Feb. 8th. This past Friday shares broke through round-number resistance at $160.00. Overall the stock is showing relative strength. It did not breakdown with the S&P 500 and now it's challenging the December highs. Odds are good the rally continues.

The late December 2009 high was $161.33. I am suggesting we open bullish call positions at $161.75. If triggered our first target is $167.50. We might consider adding a second target down the road. The Point & Figure chart is very positive with a bullish signal forecasting a $198 target.

Suggested Options:
Use a trigger at $161.75. I'm suggesting the March $165 calls.

BUY CALL MAR 165 (AZO1020C165) open interest=1657 current ask $3.00

Annotated Chart:

Entry on February xx at $ xx.xx

Wynn Resorts - WYNN - close: 63.04 change: -1.92 stop: 61.99

Why We Like It:
The casino stocks can be a volatile bunch but if you can catch the beginning of a trend it can be very profitable. Shares of WYNN soared on Thursday with an apparent breakout from a sideways consolidation along support (see chart). Unfortunately there was no follow through on Friday. WYNN is due to report earnings in less than two weeks and I suspect the stock could see a pre-earnings run. WYNN's performance might be heavily influenced by rival LVS, who reports earnings on Feb. 17th this week.

I want to see some confirmation in shares of WYNN so I'm suggesting a trigger to buy small bullish call positions at $65.51. This would be above Thursday's high and above all its significant moving averages. If triggered at $65.51 our target is $71.90, just under the January highs. This is definitely an aggressive play with a short-term time frame and a volatile sector.

Suggested Options:
If triggered at $65.51 I am suggesting the March $70 calls.

BUY CALL MAR 70.00 (UWY1020C70) open interest=2097 current ask $1.39

Annotated Chart:

Entry on February xx at $ xx.xx

United States Steel - X - close: 47.98 change: +0.97 stop: 43.99

Why We Like It:
We bought the bounce in X back on February 4th and then gave up immediately when there was no follow through. It looks like we should have held on. Traders have bought the dip near $44.00 several times now. Shares are now rebounding past technical resistance at its 100-dma. The move over the past couple of weeks looks like a short-term bottom.

Last week I considered it an aggressive buy and I still consider X an aggressive, higher-risk buy today. Use small positions at current levels (or you could wait for a dip back toward $46.50 as your entry point). Our first target is $51.75. Our second target is $54.00.